Are you a small business owner seeking the financial fuel to propel your venture to new heights? If so, then understanding small business loans and how to apply for them is crucial. In this step-by-step guide, small business loans and the application process will be demystified. With knowledge of your business loan options and insight about how to fill out a business loan application, you will feel less inclined to rush and will be able to position yourself for quick approval and success.

What to Know About Small Business Loans

Small business loans are the lifeblood of many entrepreneurial dreams. They serve as a vital source of working capital, allowing businesses to stay afloat, invest in growth, and ride out those inevitable cash flow fluctuations. When it comes to these loans, you’ll find a diverse array of options to explore, each tailored to meet the specific needs of businesses like yours. The most common choices include Small Business Administration (SBA) loans, term loans, and business lines of credit.

Let’s take a more in-depth look at some of these options:

Small Business Administration (SBA) Loans

SBA loans are government-backed loans designed to help small businesses access financing with favorable terms. These loans come in various forms, including 7(a) loans (general purpose loans), CDC/504 loans (for real estate and equipment purchases), and microloans (smaller loans). SBA loans are a decent option because they typically offer competitive interest rates and longer repayment terms.

Business Lines of Credit

Business lines of credit provide you with a revolving credit limit that you can draw from as needed. They are flexible and can be used for managing cash flow, covering short-term expenses, or taking advantage of opportunities. Similar to a credit card, you only pay the interest on the amount that you used.

Term Loans

Term loans are traditional loans where you borrow a lump sum of money and repay it over a set term with regular installments. You can use term loans for various purposes, such as expanding your store or giving yourself some working capital. Terms can range from a few months to several years, with fixed or variable interest rates.

Merchant Cash Advances

Merchant cash advances (MCAs) provide your business with quick access to cash, but they may come at a higher cost. Being that they are based off your daily credit card sales, MCA repayments are generally a percentage of said credit card sales.

Equipment Financing

Equipment financing loans are used to purchase machinery, vehicles, or other equipment for your business. The equipment being financed serves as collateral, making these loans more accessible and offering favorable terms.

5 Steps for an Easy Application Process for Small Business Loans

Now let’s take a look at the five steps needed to secure your ideal business loan and help it thrive.

Step 1: Define Your Loan’s Purpose

As with any journey, be it personal or business, it is always wise to chart your course first. This thinking also applies to securing a small business loan. Define the exact purpose of the funds you seek. Clear, concise planning not only sharpens your focus but also equips you with a robust blueprint for your business’s financial future. Whether it’s bolstering your inventory, expanding your operations, or investing in new equipment, a well-thought-out plan will be your North Star throughout this journey.

Step 2: Selecting the Loan Type and Amount

Small business loans are like tools in a toolbox, each designed for a specific job. One of the most important gauges for these tools is the APR (Annual Percentage Rate) – it’s your true indicator of the loan’s overall cost.

You should also select a loan based on your business. For emerging businesses, options like lines of credit and term loans are more accessible than merchant cash advances and SBA loans. The downside to using lines of credit is the higher interest rate.

For an established business, you have a bit more options. Since you have already proven your stability and credit history, you receive the benefit of lower interest loans or longer loan terms. Options like SBA loans, business credit cards, merchant cash advances, and a variety of term loans are available.

If you are unsure about which loan types are ideal for your small business, consider getting in touch with a local small business loan lender like New Bridge Merchant Capital to see what may work best for you.

Step 3: Choosing a Lender and Navigating Loan Requirements

Every type of small business loan comes with its own set of requirements. For example, if you opt for an SBA loan, you will need to double-check the following prior to submitting an application:

• Eligible Industry: Ensure your business operates in an industry that’s eligible for the type of loan you’re pursuing. Some sectors, like life insurance, might not fit the bill.
• Size Criteria: Depending on the loan, you may need to meet size criteria based on factors like the number of employees, net worth, or revenue.
• Business History: Most lenders prefer businesses with at least a couple of years of operational history.
• Funding Efforts: Be ready to show that you’ve made efforts to secure funding elsewhere.
• Business Credit Score: Maintain a business credit score above 140 to increase your chances of approval. You can check your business credit score either through Experian or PAYDEX.

Remember, lenders often set their own course requirements too. When choosing your lender, ensure they align with the specific loan type and their criteria suit your needs.

Step 4: Gather Your Documents

To navigate the loan application process smoothly, gather your documentation ahead of time. Keep in mind that different lenders will have their own set of documentation requirements that often expand upon what is needed to complete the loan application. However, there’s a common thread running through what most lenders typically request. Here is what you should have ready to complete the application process smoothly:

Business Information

This is the foundation of your application. Expect to provide basic details about your business, such as its name, address, and tax ID. But don’t stop there; some lenders may delve deeper and ask for a comprehensive business plan or proposal. Within the business plan or proposal, you’ll map out precisely how you intend to utilize the loan effectively.

Financial Statements

Lenders want to make sure that those they are lending to are financially healthy. Be prepared to furnish financial statements, including your annual revenue figures. These might encompass profit and loss statements, tax returns, and bank account statements, both for yourself and your business entity. It’s a financial snapshot that paints a comprehensive picture of your enterprise’s fiscal stability.

Collateral Information

Depending on the lender and loan type, you might be required to offer collateral to secure your loan. Collateral typically involves assets like real estate or equipment. It’s crucial to provide comprehensive information about the type of collateral you’re putting up and its assessed value. To bolster your case, consider having an independent auditor evaluate the collateral’s worth before diving into the loan application process. Keep in mind that traditional banks and SBA lenders are more likely to request collateral compared to their online counterparts.

Ownership Details

Lenders are keen to know who’s at the helm of your business. You’ll likely need to provide information about the business’s owners, including their names, Social Security numbers, and addresses. Expect this request, especially if any owner holds a significant stake in your company, often around 20% to 25%, depending on the lender.

Personal Guarantees

Most lenders will insist on borrowers signing a personal guarantee as part of the loan application. This is a critical document that establishes your commitment to repaying the loan using your personal assets if, for any reason, your business defaults. In some cases, additional business owners might also be required to sign personal guarantees, so be prepared to navigate this aspect of the process.

Step 5: Complete the Application

With your paperwork ready, you’re well-prepared to embark on the loan application process. Double-check that all required documentation is in order, review your application carefully, and when you’re confident everything is accounted for and correct, submit your application.

You can expect the wait for approval to take between 30 to 90 days, though it depends on the lender you chose and the loan type.

Ready to Apply for a Small Business Loan?

Applying for a small business loan does not have to be daunting. With the right guidance and preparation, securing the financing your business needs can be a straightforward process. Remember to chart your course carefully, from determining your loan’s purpose to assembling the necessary documents, and choosing a lender that aligns with your needs.

When considering your financing options, look no further than New Bridge Merchant Capital.  With over 20 years of financial industry expertise, NBMC’s tailored programs cater to your specific industry, business size, seasonality, and liquidity. Our commitment to clear communication ensures a transparent, seamless, and swift process.

Ready to begin your loan application process? Contact New Bridge Merchant Capital today by calling 844-228-0593 or by filling out the contact form. We’ll help you secure the funding your business deserves.